July 25, 2017    5 minute read

Does the UK Consulting Industry Stand to Gain from Brexit?

Return of the Experts    July 25, 2017    5 minute read

Does the UK Consulting Industry Stand to Gain from Brexit?

Leaving the EU on favourable terms was never going to be an easy task, no matter how powerful a sovereign nation the leavers claimed to be. Severely understaffed, Brexit ministers are being forced to negotiate in an incredibly restrictive environment against an overwhelming opposition.

The promise to end freedom of movement during the Brexit campaign formed a negotiating “red line” from which Brexit ministers cannot back down from without losing all credibility. This is problematic as it involves asking for special treatment on the Four Freedoms of the EU doctrine. This is the equivalent of asking your mates in a restaurant to chip in an extra couple of pounds each so that you can enjoy your meal for free, whilst promising absolutely nothing back in return.

Challenges Ahead

This isn’t how negotiations work. The UK’s complex position has a number of consequences for the consulting industry. The requirements for Brexit require trade, legal and administrative challenges on a massive scale. Regarding trade, for example, there is the need to retain membership in the single market if at all possible, thereby avoiding the implementation of tariff barriers to the UK’s largest market.

As of 23rd June 2017, Britain had around 40 trade experts up to the negotiating task. The EU had over 500. If Britain has any chance of negotiating towards a favourable outcome, they must replenish this skills shortage.

“Britain’s team going into Article 50 lacks trade expertise or experience [and] works according to an overlapping departmental structure without clear lines of accountability”

Ian Dunt, author of ‘Brexit: What the Hell Happens Now?’

The skills shortage is increasingly being filled with top City consultants. The public sector was worth around £1.3bn to private sector consultancy firms in 2016, and this figure has, unsurprisingly, risen throughout 2017. Senior staff from McKinsey are being used alongside workers from professional services firms KPMG and PwC. PA Consulting is being used by UK Trade and Investment (UKTI) as part of a three-year contract to offer trade expertise, which unfortunately ended in “dismal failings in…procurement and operation”, according to Labour MP Meg Hillier.

Bringing the Consultants In

Back in April, the government offered private sector consultancy firms the chance to bid on a £1.5m contract to help deal with the process of leaving the EU.

“People who voted leave, who had genuine grievances about the lack of job opportunities, did not envisage that one of the side effects of Brexit would be many jobs for highly-powered…consulting firms”

Tom Brake, Liberal Democrat

Consultants have not only found more work in helping the government with negotiations. Thousands of UK businesses, both small and large, are facing uncertainty about how Brexit will affect their day-to-day operations. With the EU market making up around 45% of UK goods exports, British manufacturers need to lead the debate to influence future domestic policy regarding free movement of goods.

In addition to supporting this policy-based function, consultants can help develop new areas of UK-focused R&D, advise on how to capitalise on volatile FX markets, and help open new areas of demand outside of the EU. JP Morgan is already planning to build a 22-storey building on the banks of the river Liffey in Dublin, and Japanese bank Nomura has said some of its London operations will be moved to Frankfurt.

Car Industry Hard Hit

As far as manufacturing goes, the automobile industry, in particular, stands to lose out. Having produced 1.59m cars in 2015 and contributed £15bn to the UK economy, the loss of unrestricted access to the world’s largest single market could cause catastrophic losses if action is not taken.

Consultants can be on hand to negotiate secure international trade deals and free movement of labour for these companies, whilst also scouting out alternative options such as moving operations abroad in order to save money. It may not be work that holds the British economic interest at heart, but it is work nonetheless. Consulting firms will leap at such opportunities.

It is not just the manufacturing sector that worries about the potential impact of Brexit. Source: MCA: A Positive Force for the Economy.

Digital Infrastructure

Moreover – and perhaps not as applicable to manufacturing as, for example, financial services – businesses will need ever-increasing assistance with their digital infrastructure. At a time when physical barriers between the UK and the EU are developing, digital offerings must advance so that such barriers become less important.

An efficient digital infrastructure spread internationally helps to ease requirements for freedom of movement in large organisations. This is something technology consultants will be keeping wary of as an avenue for new contracts. Things are not completely positive for UK consultants, however. Many London-based consultancies work on projects across Europe.

Consultants fly out to cities across Europe early Monday morning to get face-to-face contact with clients, before returning later in the week. Should Theresa May’s ‘hard’ Brexit materialise, thereby putting an end to freedom of movement, all of these consultants will require work visas to continue such work practices. Visa fees could make this a rather expensive issue for UK-based consultancies.

Conclusion

Overall, therefore, Brexit will inevitably bring sufficient levels of work for UK consultants. Despite potential obstacles, such as the requirement of work visas, consultancies will probably view Brexit in a positive light. Such a view, however, is completely business-oriented. Whether their personal views align is another issue altogether.

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